We all know that in order to make a living writing, you have to create content to sell. That can include books, novellas, and even short stories. Those who are new to writing as a business often forget about one critical thing: while content is king because we must have it, profit is what pays the bills. Those who have a creative mindset are often missing the key component to writing for a living: the business side of things. This is hard and takes time and effort outside of the time we spend writing, editing, contracting help, distributing, and marketing our work. But to be successful, we need to make a profit.
Basically this is accounting, and just like your household budget, you can use software and other techniques to track your income, expenses, and whether you are in the positive or negative at the end of the day.
When I ask writers, especially newer ones, if they have made money from their books, they often shrug. That’s because their MFA in creative writing didn’t include some basic business courses, and they never bothered to take some, or they just studied to pass the test (not that I ever did that in college, sorry Mr. Summers).
A profit is essentially when you subtract your expenses from the money that you made, and you have a positive number as a result. Your percentage of profit is your overall income divided by the amount you get to keep. What that really means is that, just like in your household budget, you have to track what you spend, what you make, and do some simple math at the end of the day. What does that look like for a typical writing business?
I’m going to list some common expenses here based on my experience. That experience may not be the same as yours, but you will probably have most of these items in your writing budget.
- Editing includes deep edits and proofreading, and you should be paying for both. You can’t edit your own work. Don’t try. That goes back to quality product issues, and that is another post entirely.
- Formatting is the act of getting your manuscript from the software you wrote it into something people can buy, on digital markets and in print if you are doing a print version of that particular work. There is software, like Vellum, that we can use to help with this, but it isn’t free—when you purchase software, that is a formatting expense. The other cost is the time it takes you.
- Cover Design is self-explanatory, but like editing, most authors cannot do this themselves, and there are other reasons they shouldn’t, with very few exceptions. Pay a good cover designer, but don’t go over the top.
- Distribution Costs are very low for just digital work. If you are doing print versions, this includes setup and marketing on certain websites and the money you spend shipping or delivering author copies, although you should do little to none of this.
- Inventory relates to print as well because usually, you will want to have author copies on hand of the books that you have written. You can sell these (for a profit) at events, or you can give them away as prizes, or use them in a variety of other ways.
- Marketing includes any efforts to get your work in front of others. It includes Amazon Ads, BookBub ads, and others. You can read more about making a profit from those here. It also includes things like your website, a program to handle your email lists, and any social media automation you choose to do.
- Miscellaneous expenses include things like your Amazon Prime membership, if you have one, a Microsoft Office 365 subscription, the cost of any software you use (formatting, ProWriting Aid, whatever you use), books on craft and the business of writing, writers’ conferences, seminars, and your travel expenses, and more. You can also include internet services, coffee, part of your power bill if you work at home, and even part of your rent.
- Author salary is the money that flows from your writing business budget to your household budget. For tax purposes, and other ones, don’t mix these two, please. But you need to pay yourself because you don’t just go to work to cover the business expenses, do you?
New authors often forget that last item, but you need to pay yourself. If you don’t you can’t make a living, right? The next question people have is often “how much should I pay myself?”
It’s a good question, but much of that depends on the amount and percentage of your profit, how consistent that is, and whether you can live the lifestyle you want from it. This is also often a determining factor in when you can and should quit your day job.
Common Sources of Author Income
So where does your money come from? This also depends on your path to publication and the other things you do or can do. Here are some of them.
- Digital book sales: this is the money you make from Amazon and other eBook retailers. Most U.S. based authors at the moment make most of their digital sales from Amazon, but distributors like Kobo and others are rising in popularity. If you have books in Kindle Unlimited instead of wide distribution, Amazon is your only source of income.
- Physical book sales: These are books you sell through distributors like Ingram, your local indie bookstore, Barnes and Noble, at conferences and in-person events that you attend or organize, and directly to consumers through your website if you choose to go that route.
- Workshops and Speaking Fees: Once you are more established as an author and you know what you are doing, you can speak at conferences and other places and get paid for it, and even have workshops and seminars of your own.
- Website monetization, YouTube, Podcasting, and more: There are all kinds of other ways to make a few dollars here and there. The more sources or streams of income you have, the more likely you are to make a profit.
Most writers have a day job—it’s just a fact. For some of us, our “day job” is also writing or providing services to other authors like editing or marketing services. For example, I am a freelance writer for my “day job”, which means I write content for others and even ghostwrite books.
It’s not “author work” but it is still writing, and a very fulfilling way to make a living. Still, for me to keep writing books, the author side of my business must be profitable.
Simple Formulas and Tracking
So how do you keep track of all of this? Well, there are simple ways you can adapt budget programs and others to track your income and expenses. First, you should have your writing organized under an LLC in your state for several reasons, even if you are not making a lot of money yet.
You should also have a separate bank account for your writing. You can just do this through PayPal or another service, but if you have a local bank account where you can do things like deposit cash, transfer your Square and other earnings, and take expenses from, since you can’t always do that through PayPal.
Then you can either connect to software like Mint or Quickbooks Small Business and track your income and expenses there. It’s a simple formula, really. You just add up what you earn from the various sources of income and come up with a number. Do the same with your expenses, and do some subtraction.
New books and new series often take time to earn out. You want to know if your book and your business is profitable overall. For example, for easy math, let’s say you paid $1K to have someone edit your book, $200 for a cover, and $200 for formatting. That means you’ve spent $1400 so far.
You might not make $1400 at your book launch, or even in the first month, especially if you are early in your career. But with the right marketing, you should make your money back in a reasonable amount of time.
This doesn’t always happen easily. Sometimes it takes time to figure out a particular book and how it will best be marketed. And with a series, figuring things out may take a little bit, but eventually, you should be making something from all the books in the series.
There are ongoing costs too. Marketing is constant, and you often pay monthly for programs like MailChimp or SmarterQueue. Be sure to take those into account when looking at your budget.
To determine your percentage of profit, divide the amount you were positive by how much you actually took in for income. As you move forward, you want this percentage to increase over time.
A Word About Cash Flow
While cash flow is an entirely different subject, and one that deserves a post of its own, it’s making sure that you are keeping track of yearly expenses, and the amount of cash you have to either leave in the bank or have on hand to cover them in addition to your monthly expenses. To do this, you have to look at your overall income, and even make projections about what you expect your income to be.
Many businesses, including writers, fail because they don’t understand this principle and how it relates to profit. Some months your profit will be higher than others because of these expenses, and to prevent yourself from going broke, you need to account for them.
Making a Writing Business Profitable
To make a writing business profitable, you need to be taking in more money than you are spending. This means you must be watching your expenses and adjusting constantly. It also means you must be monitoring which marketing efforts are profitable and what isn’t. Sometimes a book will not be profitable overall, and you will have to decide how to change that.
This often means changing covers, book blurbs, keywords on various sites, and many other activities apart from writing. It also might mean adding streams of revenue like a blog, YouTube Channel, and other ways you can make money. You can have a profitable writing business. But you must treat it as a business. Want to learn more? Grab Writing as a Business: Production, Distribution, and Marketing for a great general overview. Then follow this blog and my upcoming podcast. I look forward to seeing you around.